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Limited post-FOMC volatility had been erring on the side of slightly higher yields at first. That tone has reversed course now and 10yr yields just hit new lows at 2.655. Fannie 4.0s are at their best levels of the day, up 10 ticks at 104-24.

Lenders who may have been waiting for the FOMC Announcement before joining the small group that repriced earlier in the day, may now have the stability and positive outlook needed to pull the trigger. Of course that assumes there was an intent to reprice in the first place. Overall movement post-Fed has been strikingly small. Still, it's moving in the right direction now.

While bond markets are noticeable more active in the minutes following the FOMC Announcement, there's no clear break in either direction so far. The few brief moves out of the pre-Fed range have been higher in yield in terms of Treasuries, but have gone both higher and lower in MBS.

The range of movement in this case is a very small 104-19 to 104-24 in Fannie 4.0s. They're currently at 104-21, which is where they spent most of the last 3 hours.

Very little about the Fed Announcement was changed. The first paragraph tweaked some verbiage to place even more emphasis on the weather effect and add some more certainty that we're putting it behind us--nothing the data hasn't already suggested. The only other change is the sentence that notes household spending is rising more quickly and business investment 'edged down.'

Whether or not these slight bullish and bearish changes cancel each other out remains to be seen. If there's one concern for the afternoon at the moment, it's the technical resistance that 10yr yields have run into at 2.657. Until and unless 10's want to break any lower than that, it makes more sense to be defensive, or at least ready to lock.

Negative reprices shouldn't be much of a risk unless 4.0s fall below 104-19, and even then that would be more of an early warning sign. Don't be complacent though. Treasuries do look like they're thinking more about moving higher in yield vs lower.

Category: MBS, UPDATE

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4/30/14

All Quiet Ahead of the Fed; Secret Closed-Door Meeting?

News of a closed-door meeting of the Fed board (just the 4 members who don't represent a regional district) is making the rounds today, with the observation that similar instances of closed-door meetings were used to discuss significant changes in the past. These weren't changes in monetary policy, but rather, in how the Fed managed its existing holding holdings. The alarmist implication is that Fed might be considering a change to the "not selling MBS" stance that it has recently been fairly clear about.

The good news is that a new Fed Vice-Chair was just confirmed by the Senate, and the meeting most likely concerns integration housekeeping. Either that or we're about to get an unexpected tape-bomb. The latter makes for more page-views, and the sources of the aforementioned articles are well aware of this. So take them with grains of salt. Fed meetings always stand a chance of surprising markets, but markets aren't feeling too defensive about being surprised this time around.

Trading levels have been strong and stable--completely unchanged from the last update with Fannie 4.0s up 7 ticks at 104-21. 10yr yields have been hovering around 2.66 since 11am, and markets are just hoping to jump over these last few low hurdles before getting to Friday's line and finding out how NFP comes in.

Several lenders have come out with positive reprices. They continue to be a muted possibility (we have seen some weirdly-timed reprices around Fed announcements in the past, so never say never) into 2pm, but the hold-outs are more likely to reprice if we're holding ground or improving after the first few minutes of Fed reaction.

Category: MBS, UPDATE

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4/30/14

Almost No Reaction to Stronger Chicago PMI Data

It looks like Chicago PMI just jumped the shark as a significant market mover. One possible explanation for the lack of interest is that the report has a decent level of correlation with GDP, and GDP came out earlier this month. Whatever the case, bond markets are maintaining their bullish resolve despite the stronger numbers, and stocks are at session lows.

As for the data itself, the index came in at 63.0 vs 56.7 forecast, the second highest reading since 2011. The only higher reading was the colossal surprise back in October 2013 when the index jumped from 56.3 to 66.6.

Bond markets are still near their best levels of the day with 10yr yields down 1.5bps at 2.68 and Fannie 4.0s up 5 ticks at 104-19.

At most other times in history, this big a miss versus the consensus would make for a bigger market reaction, but as it stands, 10yr yields are only down roughly 3 bps at 2.6. Fannie 4.0s are now 3 ticks up on the day at 104-17.

As nice as it is to be moving decisively into positive territory, in a range that's been 2.6 to 2.8, this is a pretty modest movement. It speaks to the general apathy that has pervaded 2014 and suggests we're still waiting on that special something to bust us out of our range-bound prison (even though we'll wish we could be locked up again if we happen to get busted out in the wrong direction). That prison-break stands the highest chance of being executed by Friday's NFP--another factor probably serving to mute reactions to data this week.

In the time it took to type that last paragraph, 10's are back up a bp to 2.69. C'est la vie. Hopefully just consolidation and not some silly reversal (if it's a silly reversal, that would be a fairly negative hint about underlying predisposition among traders).

Category: MBS, UPDATE

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4/30/14

Bond Markets Slightly Weaker after ADP Employment; GDP Coming Up

The on-again off-again ADP Employment report came in 10k over consensus at 220k with the previous report revised up to 209k from 191k. There was a time in mid 2013 when this would have made for a bigger reaction, but inconsistencies in the relationship between ADP and the official employment tally from the Bureau of Labor Statistics have muted market reactions of late. Still, it's put us on the back foot to a small extent heading into GDP.

Treasuries had an uneventful overnight session and were slightly higher just before ADP with 10yr yields at 2.703. They're now up to 2.7114. MBS are only 1 tick lower since ADP, from 104-11 to 104-10, but that's 4 ticks lower including the opening weakness.

Limited post-FOMC volatility had been erring on the side of slightly higher yields at first. That tone has reversed course now and 10yr yields just hit new lows at 2.655. Fannie 4.0s are at their best levels of the day, up 10 ticks at 104-24.

Lenders who may have been waiting for the FOMC Announcement before joining the small group that repriced earlier in the day, may now have the stability and positive outlook needed to pull the trigger. Of course that assumes there was an intent to reprice in the first place. Overall movement post-Fed has been strikingly small. Still, it's moving in the right direction now.

While bond markets are noticeable more active in the minutes following the FOMC Announcement, there's no clear break in either direction so far. The few brief moves out of the pre-Fed range have been higher in yield in terms of Treasuries, but have gone both higher and lower in MBS.

The range of movement in this case is a very small 104-19 to 104-24 in Fannie 4.0s. They're currently at 104-21, which is where they spent most of the last 3 hours.

Very little about the Fed Announcement was changed. The first paragraph tweaked some verbiage to place even more emphasis on the weather effect and add some more certainty that we're putting it behind us--nothing the data hasn't already suggested. The only other change is the sentence that notes household spending is rising more quickly and business investment 'edged down.'

Whether or not these slight bullish and bearish changes cancel each other out remains to be seen. If there's one concern for the afternoon at the moment, it's the technical resistance that 10yr yields have run into at 2.657. Until and unless 10's want to break any lower than that, it makes more sense to be defensive, or at least ready to lock.

Negative reprices shouldn't be much of a risk unless 4.0s fall below 104-19, and even then that would be more of an early warning sign. Don't be complacent though. Treasuries do look like they're thinking more about moving higher in yield vs lower.

News of a closed-door meeting of the Fed board (just the 4 members who don't represent a regional district) is making the rounds today, with the observation that similar instances of closed-door meetings were used to discuss significant changes in the past. These weren't changes in monetary policy, but rather, in how the Fed managed its existing holding holdings. The alarmist implication is that Fed might be considering a change to the "not selling MBS" stance that it has recently been fairly clear about.

The good news is that a new Fed Vice-Chair was just confirmed by the Senate, and the meeting most likely concerns integration housekeeping. Either that or we're about to get an unexpected tape-bomb. The latter makes for more page-views, and the sources of the aforementioned articles are well aware of this. So take them with grains of salt. Fed meetings always stand a chance of surprising markets, but markets aren't feeling too defensive about being surprised this time around.

Trading levels have been strong and stable--completely unchanged from the last update with Fannie 4.0s up 7 ticks at 104-21. 10yr yields have been hovering around 2.66 since 11am, and markets are just hoping to jump over these last few low hurdles before getting to Friday's line and finding out how NFP comes in.

Several lenders have come out with positive reprices. They continue to be a muted possibility (we have seen some weirdly-timed reprices around Fed announcements in the past, so never say never) into 2pm, but the hold-outs are more likely to reprice if we're holding ground or improving after the first few minutes of Fed reaction.

It looks like Chicago PMI just jumped the shark as a significant market mover. One possible explanation for the lack of interest is that the report has a decent level of correlation with GDP, and GDP came out earlier this month. Whatever the case, bond markets are maintaining their bullish resolve despite the stronger numbers, and stocks are at session lows.

As for the data itself, the index came in at 63.0 vs 56.7 forecast, the second highest reading since 2011. The only higher reading was the colossal surprise back in October 2013 when the index jumped from 56.3 to 66.6.

Bond markets are still near their best levels of the day with 10yr yields down 1.5bps at 2.68 and Fannie 4.0s up 5 ticks at 104-19.

At most other times in history, this big a miss versus the consensus would make for a bigger market reaction, but as it stands, 10yr yields are only down roughly 3 bps at 2.6. Fannie 4.0s are now 3 ticks up on the day at 104-17.

As nice as it is to be moving decisively into positive territory, in a range that's been 2.6 to 2.8, this is a pretty modest movement. It speaks to the general apathy that has pervaded 2014 and suggests we're still waiting on that special something to bust us out of our range-bound prison (even though we'll wish we could be locked up again if we happen to get busted out in the wrong direction). That prison-break stands the highest chance of being executed by Friday's NFP--another factor probably serving to mute reactions to data this week.

In the time it took to type that last paragraph, 10's are back up a bp to 2.69. C'est la vie. Hopefully just consolidation and not some silly reversal (if it's a silly reversal, that would be a fairly negative hint about underlying predisposition among traders).

The on-again off-again ADP Employment report came in 10k over consensus at 220k with the previous report revised up to 209k from 191k. There was a time in mid 2013 when this would have made for a bigger reaction, but inconsistencies in the relationship between ADP and the official employment tally from the Bureau of Labor Statistics have muted market reactions of late. Still, it's put us on the back foot to a small extent heading into GDP.

Treasuries had an uneventful overnight session and were slightly higher just before ADP with 10yr yields at 2.703. They're now up to 2.7114. MBS are only 1 tick lower since ADP, from 104-11 to 104-10, but that's 4 ticks lower including the opening weakness.

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